China's GDP Up 10.7% in Fourth Quarter, But It's a Fragile Surge

The Chinese government says the country's fourth-quarter GDP rose 10.7%, according to a number of published reports. That would put its expansion back on the fast-growth path it was on prior to the recession.China implemented a huge stimulus package last year -- $585 billion for a nation with a GDP of a little over $4 trillion. By comparison, the American stimulus was $787 billion in a nation with a $14 billion GDP. Some economists have argued that China's success in driving liquidity into its market by way of the banking industry has caused an excessive availability of credit which has fueled bubbles in equities and real estate. The Chinese government recently told the nation's banks that they should tighten lending practices.

But bubbles may be the least of China's economic problems. Late last year, China's State Council said that it would curb production of steel, aluminum and cement. China may still be producing too many goods to market to the still-weak economies in the West. Exports from the world's most populous nation were down through most of 2009.

It's not yet clear now much of China's surge in GDP growth was driven by exports and how much by the country's new middle class. This middle class was created fairly rapidly as China moved people from rural areas to manufacturing centers to help man the nation's industrial engine.

What is clear is that China's middle class are consumers of the same goods as Western consumers are. Car sales in China grew at almost 50% in some months last year. Overall, China's imports in December were up 56%. A portion of that growth came from raw materials, and the rest from finished goods for Chinese consumers.

The trouble China has is that if exports do not rise substantially through 2010, its factories will be forced to cut output. If factory output falls, that, in turn, will mean jobs cuts for Chinese workers, and those unemployed workers will no longer be such strong consumers.